Bankoh income increases 21.5%

By David Butts
Advertiser Staff Writer

•	Bank of Hawaii 3rd quarter earnings: Net income: $36.7 million, up 21.5 percent. Total assets: $9.4 billion, down 3 percent. Net interest margin: 4.15 percent versus 4.03 percent a year ago.

Michael O'Neill, chairman and CEO, said the bank was benefiting from three years of cost cutting, improving loan quality and shedding unprofitable businesses. And it doesn't hurt that the backdrop is an expanding Hawai'i economy.

"The economy is strong," O'Neill said. "Tourism from the Mainland is at record levels. Housing continues to be very strong. The strong yen is bringing the Japanese back. On balance, things are great. Inflation is low. Unemployment is low."

That growth translates into businesses borrowing more money.

"Talk is cheap. But when people come in and borrow money, it suggests that they have confidence in the future," O'Neill said. "We are seeing significant increase in loan demand both on the corporate side as well as the consumer side."

The growth here contrasts with many banks on the Mainland where corporate borrowing has stalled.

"Most banks have found that there isn't any commercial loan demand and margins have been compression," said Jim Bradshaw, a banking analyst with D.A. Davidson & Co.

Bank of Hawaii, the state's largest bank based on assets, reported its net income rose to $36.7 million, or 61 cents per share, for the three months to Sept. 30, up from $30.2 million, or 43 cents per share, in the same quarter last year.

The bank said it expects to exceed its previous estimate of $131 million in earnings for all of 2003.

Investors cheered the news, pushing Bank of Hawaii's share price up $1.65 to $36.79, a 52-week high.

"The stock positively reacted to the strong earnings and the boost in the dividend," said Brian Harvey, an analyst at Fox-Pitt, Kelton. Harvey added that Bank of Hawaii shares are still cheap relative to its peers.

The bank's share price has more than tripled since O'Neill took over in November 2000.

"This is a rare turnaround story," Bradshaw said. "Rare that it happened and rare in magnitude. They had a good, simple to understand game plan, and they executed the daylights out of it. They did what they said they would do. These guys have gigantic credibility with The Street."

The question now is what can the bank do to extend its winning streak.

O'Neill and his deputies are putting together their next three-year plan, which will be released in January, but it won't be as ambitious as the first one.

"We are putting away the power tools and taking out the scalpel," O'Neill said on a conference call with analysts.

The new plan will focus on better servicing existing customers and fine-tuning expenses, O'Neill said.

For example, "We may have one building too many," O'Neill said. "Consolidating our activities into one fewer building would reduce cost. That's the kind of thing that I am talking about ... It's tinkering as opposed to major programs."

Not all the quarterly numbers were positive for the bank.

A drop in interest rates from a year ago, led to a decline in net interest income. It was $91.1 million in the third quarter, down $1.1 million from the third quarter of 2002. Still, the net interest margin was 4.15 percent for the third quarter, an increase from 4.03 percent in the same quarter last year.

Also total assets were $9.4 billion as of Sept. 30, down from $9.7 billion a year ago.

The bank said the decrease was largely due to reductions in short-term investments as the bank used excess money to repurchase its own shares.

Reach David Butts at dbutts@honoluluadvertiser.com or 535-2453.